Download Part IV. Renewable Resources

Part IV. Renewable Resources
A. Fish
B. Forests
C. Water
D. Biodiversity
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C. Water
Chapter 15
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Introduction
•
4 distinct problems have arisen that affect the availability
of water:
1.
In many areas of the country the use of water exceeds
the rate at which it is being replenished.
2.
Many activities use water as an input, and when the
water is returned to surface or groundwater, its quality is
diminished.
3.
Many activities use surface or groundwater as a means to
dispose of waste, creating water quality problems.
4.
Degradation of ecosystems weaken their ability to store
water and modulate the drought/flood cycle.
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Water Consumption
•
Within the resource taxonomy there are 3
categories:
1. Renewable resources, in which the stock
regenerates itself
2. Resource flows, where a never-ending flow
comes from a nondepletable stock
3. Exhaustible resources, fixed amount
*****Water can be described as all 3*****
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Renewable
• Water, in general, meets the definition of a
renewable resource, where the evaporation from
the oceans and other water sources creates the
precipitation that replenishes the oceans.
• Smaller water bodies, however, do not generally
replenish themselves.
• The evaporation from a river does not provide the
water source for a river (with the exception of
very large systems like the Amazon)
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Resource flow
• Water in riverine systems can be viewed as a
resource flow.
• The water that arrives at any particular point along
the river is independent of the amount of water
that is taken out at that point.
• More important, a decision to remove water today
will not affect the amount of water that is taken
out tomorrow
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Exhaustible
• However, can view river water as exhaustible in
the sense that an upstream user’s decision to
remove water reduces the amount of water
available to downstream users.
• Some water resources can be viewed as
exhaustible because the rate of growth of the stock
is small in relation to the use of the water.
• "Fossil water," which is water that has
accumulated slowly in underground aquifers over
millions of years is an example of an exhaustible
resource.
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Water availability
• If the flow of a river is much larger than the withdrawals of
water to meet consumptive and productive needs then there
will be no resource allocation problem, even if the water is
available at zero cost.
• However, if the flow of water is not capable of meeting all
needs at any point in time then a shortage will develop.
• At a price of zero, quantity demanded of water is greater
than amount available and as price rises, the least valuable
needs will be left unsatisfied.
• If price is continually raised, eventually quantity demanded
will equal the amount of water available.
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Scarcity and the price of water
• Figure 15.1 illustrates how essential scarcity is in determining
price.
• In this figure g0 represents the daily volume of water that may
be removed from the river.
• The cost of extraction is zero.
• Demand is represented by D1.
• Under these circumstances, all the demand that exists at zero
price will be satisfied.
• However, if Demand increases to D2, all the demand at zero
price cannot be satisfied.
• As demand increases, the opportunity cost/user cost of
consuming the fixed flow of water increases, which is reflected
in the increased price (remember, assumed MEC = 0)
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Property rights
• Property rights must be well defined in order for a market
and a price to exist.
• Price will also reflect the MC of producing water.
• The cost of producing water takes the form of purification,
transportation, etc.
• If property rights are not well defined or other conditions
result in market failure, then the price will be too low and
this will lead to shortage as illustrated in Figure 15.2.
• Here, the price at which quantity demanded equals fixed
quantity supplied is p0, but a price of p1 would lead to a
shortage equal to g1-g0.
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Property rights
• Property rights to water are a big issues in the Western US
where most rights are defined on a state-by-state basis.
• Appropriation-based water rights make water available for
use by anyone who can apply it to a beneficial purpose.
• Priority goes to the user who establishes his or her
appropriation-based rights first.
• Initially these rights were nontransferable but increasing
demand for water has led western states to make them
transferable.
• This has created a market for water and the potential to use
market mechanisms to protect ecological uses of water. 13
Water as resource flows
• In eastern and Great Lakes states, water resources can be
viewed primarily as resource flows, where most cities and
agricultural areas depend on surface water or groundwater
that is generally replenished by normal rainfall.
• One mechanism that often leads to urban water problems is
the process by which water is priced and distributed to
customers.
• This is usually done by either a regulated water utility or a
municipal water company.
• In both cases there are political or regulatory forces that
push the price of water below its opportunity cost.
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Monopoly water pricing
• When water is provided by a regulated monopoly,
the scarcity value of water is not incorporated into
the price, only costs of the other inputs used in
purifying and distributing water.
• If the price of water is below the opportunity cost,
a shortage will develop and other means will have
to be used to allocated the water.
• There is no guarantee that these alternative
methods will result in an efficient allocation of the
water.
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Public pricing
• Alternatively, if a city elects to provide
distribution of water as a city service, political
pressures may keep rates low (e.g., agricultural
special interests), again allowing no mechanism
for reflecting the value of alternative uses.
• When consumers of water in an apartment
building pay a rate based upon use by the entire
building (average price) rather than an individual
rate (marginal price) there is no strong incentive to
conserve use (condominiums – whole building 16
metered, not individual units)
Public pricing
•
Even if water is priced according to marginal
willingness to pay, there may still be market
failure if the pricing structure does not reflect the
ecological opportunity cost of water (flows of
water necessary for aquatic life).
•
2 basic ways to reflect the ecological opportunity
cost of water include:
1. Government tax on water use
2. Purchase of water rights by NGOs where the water is
left in the stream.
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Water as an
Exhaustible Resource
• Water resources in western states are better
described as exhaustible resources (rate of use >
recharge)
• The economic analysis of water as an exhaustible
resource is very similar to the analysis of water as
a resource flow, only there is an additional
opportunity cost.
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2 opportunity costs
1.
The first opportunity cost is the cost of not having water
for another current use, the contemporaneous
opportunity cost.
2. The second is the opportunity cost of not having the
water available for future use, which results from current
use depleting the stock available, which is called the
intertemporal opportunity cost.
•
An efficient allocation of water would require that the
price reflect both contemporaneous and intertemporal
opportunity cost.
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Degrading Uses of Water
There are 3 types of uses that degrade water quality.
1.
Removal of water from surface water bodies or groundwater aquifers
generates ecological damage. Heavy water withdrawal in the coastal
area of southern Florida has lead to saltwater intrusion into the
aquifer.
2.
When a direct consumer of water uses it and returns it to
hydrological cycle with wastes and contaminants. E.g., residential
use of water which adds human wastes: even when treated, the water
has a higher level of nutrients which can cause ecological damage.
3.
Activities that generate wastes that are directly deposited into or
make their way through natural mechanism such as run-off from
rainfall. E.g., rainfall run-off that carries pesticides from agricultural
fields.
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US Policy Toward Water Pollution
• U.S. policy toward water pollution has historically
focused on large point sources of pollution.
• Point sources of pollution are those where the
pollution enters the water body at a specific point,
such as the end of an effluent discharge pipe.
• One of the major thrusts of attempts to reduce
water pollution was a program to reduce the
impact of the discharge of municipal sewage.
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US Policy Toward Water Pollution
• Amendments to the Clean Water Act required all
municipalities to develop and upgrade their sewage
treatment facilities.
• Programs were designed so that the federal government
would pay 75% of the costs of the facility, and the local
government would be responsible for the remainder of the
construction costs and for operating costs.
• The primary reason for the federal government
involvement was that the social benefits to the nation of
treating a community’s wastewater was greater than the
social benefits to the community.
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Command and control
• The subsidized improvements in municipal
sewage treatment plants were required by the
Water Pollution Control Act of 1972, the Clean
Water Act of 1977, and 1977 and 1978
amendments to the Clean Water Act (CWA).
• These acts, based on command and control
techniques, also focused on other large point
sources of pollution, such as paper plants, food
processing facilities, and other industries.
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Command and control
• The National Pollution Discharge Elimination
System (NPDES) made all discharges illegal
unless authorized by NPDES.
• Polluters were required to use best practical
technology (BPT) for conventional pollutants and
best available technology (BAT) for toxic
pollutants.
• BPT allows for the consideration of cost of the
technology, BAT does not.
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Economic incentives?
• Economic incentives have not been employed to
deal with water quality problems.
• While it would be feasible to develop a system of
marketable pollution permits, it would require
more interstate cooperation, since all the major
river systems span several states.
• The use of command and control policies created
the same types of problems discussed in earlier
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chapters.
C & C problems
• The CWA and associated amendments have not
been completely successful in meeting the
legislative goals of restoring and maintaining the
chemical, physical, and biological integrity of the
nations’ water.
• There has been some mixed success in reduction
of organic wastes from point source polluters.
• However, where nonpoint pollution is a major
problem, the water quality remains poor.
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Nonpoint source pollution
• Associated with agricultural, urban, and suburban
run-off.
• Recently new regulations have been developed
requiring farmers to institute “best farming
practices” to control nutrient run-off and soil
erosion.
• Agriculture remains one of the largest
contaminators of water resources in the parts of
the US and in developing countries.
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Nonpoint source pollution
• Even though some progress has been made in
controlling organic pollutants, the problem of
toxic pollutants has not been similarly reduced.
• Many areas with healthy fishing populations also
have prohibitions against consumption of the fish
due to the high levels of contamination by toxins
such as PCBs, mirex, dioxin, and heavy metals.
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International Water Issues
• The water problems in other countries (particularly
developing countries) may be more severe than in the
United States.
• The primary water problem in developing countries is the
contamination of water by untreated human waste.
• This is true not just in villages, but also in very large urban
areas such as Rio de Janeiro, where large slums intensify
the waste problem.
• This is not just a third world problem. In the Po River
Valley in northern Italy, many cities (including Milan)
dump untreated wastes into the river.
• The Mediterranean Sea suffers from extreme water
pollution problems which are expected to increase as North
Africa becomes more industrialized.
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Transfrontier Externalities
• The water consumption and waste disposal activities of
one country affect water availability and water quality in
neighboring countries.
• This is particularly true in the Middle East, where
geographically small countries overlie common aquifers
and where rivers such as the Jordan River and the TigrisEuphrates River drain several countries.
• These transfrontier externalities cannot be internalized
without international agreement.
• The US has longstanding agreements with Canada
concerning water use and water quality in boundary areas,
and a special commission to deal with Great Lakes issues.
• Agreements with Mexico are being developed.
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Summary
• Although the earth’s surface is ¾ covered by water,
uncontaminated water is a scarce resource.
• Many market failures, including externalities,
nontransferable property rights, and poorly conceived
regulatory practices contribute to the scarcity.
• From a US and international perspective, one critically
important policy change would be to price water so that it
included its full opportunity cost.
• This would include the opportunity cost of both current
and future uses of water, as well as the costs associated
with reductions in the quality of water resources.
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